When Governor Jerry Brown unveiled his proposal to shutter the state’s 65-year old Redevelopment Agencies (RDAs), he touched a raw nerve in California politics.
In 2009, California’s 425 RDAs ended the fiscal year with $5.7 billion in tax and assessment revenues, $8.1 billion in expenses, and $29.4 billion in outstanding bonds. RDAs can acquire land using eminent domain, rehabilitate or demolish run-down real estate, and develop property for businesses and homes.
Opponents of Brown’s proposal say that abolishing the redevelopment program would be catastrophic to employment, affordable housing, and economic development. Supporters of Brown’s proposal counter that RDA property tax diversions have already been a catastrophe for local services and schools.
There is little recent data to support either position. The only systematic study of redevelopment was done 13 years ago by Michael Dardia of the Public Policy Institute of California.
Dardia’s conclusions? That although redevelopment projects fostered faster average property tax growth, generally they don’t increase quickly enough to justify their share of local taxes. Last month, State Controller John Chiang began an audit to measure RDA performance.
One contentious issue is the RDA funding mechanism: tax increments. When redevelopment projects are created, RDAs float bonds to finance the infrastructure improvements needed for development. Tax increment financing routes all subsequent increases in property tax revenue to the RDA until the project debt is retired. The reasoning behind increment financing is that property tax growth is due to the redevelopment project.
Another issue is the broad latitude that RDAs have for creating projects. Redevelopment can be, according to the relevant law (California Health and Safety Code, Sections 33000 – 34160) can be “planning, development, re-planning, redesign, clearance, reconstruction, or rehabilitation, or any combination of these, of all or part of a survey area, and the provision of those residential, commercial, industrial, public, or other structures or spaces as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities…”
Property can be designated for redevelopment to:
- Alter, improve, modernize, reconstruct, and rehabilitate existing structures.
- Provide for streets, public grounds and space around public or private buildings, and improving public and private recreation areas.
- Redesign and original development of undeveloped areas that are “stagnant or improperly utilized” because of defective or inadequate street or lot layout, accessibility, or usefulness, “or for other causes.”
- Re-plan or acquire land “for reclamation or development in the interest of the general welfare because of widely scattered ownership, tax delinquency, or other reasons.”
- Improve, maintain or increase emergency homeless shelters.
California’s three largest RDAs are those of Los Angeles ($984 million), San Jose ($849 million) and San Diego $589 million).
Next: The pros and cons of California’s redevelopment programs.
For more information about California redevelopment and the governor’s proposal, visit www.leginfo.ca.gov, www.ebudget.ca.gov, www.hcd.ca.gov and www.sco.ca.gov/www.sco.ca.gov. Carolyn Schuk can be reached at email@example.com.
Markers in the History of California’s Redevelopment Law
1945: The state legislature passes the California Community Redevelopment Act, allowing cities and counties to establish RDAs to address urban blight – defined as substantial, prevalent adverse physical and economic conditions – that inhibited community development and growth.
1951: Californians vote to allow tax increment financing for RDA projects.
1952: New legislation, the California Community Redevelopment Law, routes tax increments directly to RDAs to make projects self-supporting, and thus relieve taxpayers of redevelopment costs.
1976: RDAs are required to set aside 20 percent of tax increment for affordable housing
1978: Proposition 13 caps real estate taxes, fixing property values at 1975 values and restricting assessment increases to no more than 2 percent annually. The number of RDAs doubled after Prop 13.
2011: Governor Jerry Brown proposes shutting down RDAs, and returning $1.7 billion in redevelopment funds to the state to help close California’s $25 billion budget deficit in 2012: Subsequently, redevelopment surpluses would return to counties, cities and school districts.